Gift tax for children: How to secure your child's future tax-free

You want to give your child something along the way - security, freedom, a little financial cushion. And preferably not someday, but today. This is exactly why gifts are often the method of choice. They are an easy way to pass on wealth within the family - without the detour of a later inheritance. What many people don't know: With clever planning, you can save a lot of tax and give your child a real head start.

But there are a few things to bear in mind - especially if you want to give more than a few gifts for Christmas. Gift tax kicks in faster than you think, and without an overview of the tax-free amount, tax bracket and the rules in the Gift Tax Act, a well-intentioned transfer of assets can quickly become expensive.

In this article, we'll give you all the information you need: explained in an understandable way, with lots of examples - and with a clear goal: to secure your child's future in the best possible way.

We'll help you find the right investment for your child!

Book free consultation

What is a gift actually?

At first glance, a gift sounds very simple: you give someone something - without asking for anything in return. And that is exactly the principle. In tax terms, it is a transfer of assets during your lifetime in which the recipient receives a financial benefit - for example in the form of money, real estate, company shares or other assets.

So that you know what we're talking about, here are a few typical examples of gifts:

📌 Typical forms of gifts:

• A sum of money in a child account
• An ETF or insurance savings plan in favor of the child
• A property or a co-ownership share in it
• A larger gift for a birth, confirmation or graduation

Important: Gifts are subject to gift tax - similar to an inheritance, but during your lifetime. And clear rules apply here too: Depending on the degree of relationship and the value of the gift, a certain tax bracket is assigned - with corresponding tax rates and allowances.

💡 Tip: Early planning with a view to the next ten years can be worthwhile - because most tax-free allowances can be used again every ten years.

This turns a simple gesture into a long-term benefit for your child - without any unnecessary taxes.

The tax-free allowances: This is how much you can give your child tax-free

If you want to make a gift to your child, grandchild or other loved one, you don't have to think about the tax office straight away. This is because the German Gift Tax Act provides for generous allowances - i.e. amounts up to which you can make a gift legally and tax-free.

📌 The most important thing first:

• The tax-free amount applies per donor and per person receiving the gift.
• It can be used again in full every ten years.
• Gift tax is only payable if the value of the gift exceeds the tax-free amount.

💡 Example: If you give your child 400,000 euros as a gift, it remains tax-free. Ten years later, you can make another gift of 400,000 euros - tax-free.

Here is an overview of the currently valid allowances:

🧾 E xample calculation: You want to give your child 300,000 euros today - this is below the tax-free amount of 400,000 euros, so you don't pay any gift tax. If you want to give the same amount again in ten years' time, you can make full use of the tax-free amount again.

❗ Important to know: The tax-free amount is not cumulative - for example, if you make a gift of €500,000 at once, €100,000 is taxable and will be taxed at the appropriate rate. Both the amount and the tax bracket you fall into as the donor are important.

With the right knowledge of tax law and good planning, you can pass on large assets - and give your child a real head start.

How to legally avoid gift tax

The good news: with a little planning, you can avoid gift tax completely - without any tricks, but with a clever look at tax-free amounts, degree of relationship and time periods. This is because the law allows you a whole host of tax exemptions if you know how to use them.

📌 Basic rule: You can use the tax-free allowance again every ten years. This means that if you give your child 400,000 euros today, you can give another 400,000 euros tax-free in ten years' time.

💡 Exemplary planning:

• Year 1: You give your child 300,000 euros.
• Year 8: You have more financial leeway and want to make another gift.
• Solution: Wait two years - then a new ten-year period begins and you can transfer another 400,000 euros without incurring tax.

🎯 How to make optimum use of the rules:

• Split gifts instead of transferring everything at once.
• Both parents can use their tax-free allowance - so together they can pay up to 800,000 euros to one child every ten years.
• Grandparents can also make gifts: with an allowance of 200,000 euros per grandchild.

📍 F urther tips for tax optimization:

• Use occasional gifts (e.g. for a birth or graduation) - they often remain tax-free as long as they are not out of proportion.
• Pay attention to the reporting obligation: Every major gift must be reported to the tax office within three months - even if it is below the tax-free amount!
• In the case of real estate, a gift with usufruct or right of residence can be advantageous from a tax perspective - it is worth consulting a tax advisor here.

🧾 Remember: the better the time and family distribution, the lower the tax burden - and the more assets your child will receive.

This turns a simple gesture into a long-term, tax-optimized investment in the next generation.

The problem with children's custody accounts and ETF savings plans

Many parents want to invest for their children and fall back on traditional solutions - for example, a children's custody account or an ETF savings plan in the child's name. Sounds sensible at first glance: low costs, easy to set up, flexible monthly savings. However, this solution has a number of disadvantages that are often overlooked, particularly in the long term.

🔍 What many people don't know:

• As soon as your child turns 18, the custody account belongs to them completely. You no longer have any influence over the money.
• Your child can withdraw all of the assets immediately - even if you had intended to use them for education, a driver's license or later home ownership.
• Capital gains tax is payable on reallocations in the custody account - for example when switching ETFs - as this constitutes a sale for tax purposes.

💸 Tax disadvantage with ETF custody accounts:

• Every change in strategy generates taxable transactions.
• There is no tax exemption for rebalancing.
• The income is taxed before it is reinvested - this reduces the compound interest effect.

📌 Typical example: You build up an ETF portfolio for your child over 15 years. At 18, they have access and perhaps sell everything for a spontaneous adventure instead of putting the money to good use. In addition, the money has been reallocated several times along the way - with taxed returns and unnecessary costs.

⚠️ Other disadvantages:

• There is no protection against changes in the law (e.g. new tax regulations).
• No possibility of securing conditions or flexible contract design.

🧾 Conclusion: An ETF custody account may seem cheap today - but it offers neither long-term planning security nor tax optimization. If you really want to make provisions, you should choose a solution that allows you as a parent to retain control, make the most of the gift potential and keep an eye on gift tax at the same time. After all, the value of a good pension plan often only becomes apparent at the crucial moments.

The clever alternative: investing with Invest4Kids

If you want to protect your child financially - without losing control and incurring unnecessary taxes - then the Invest4Kids concept is just right for you. Because here you combine flexible investment with the advantages of an insurance-based solution. This means: full control, high tax savings and an individually tailored concept - tailored precisely to you and your child.

🔍 What makes Invest4Kids better than a traditional custody account:

• ✅ Right of determination: You decide what happens to the assets - even after your child's 18th birthday.
• ✅ No capital gains tax on reallocations: Strategy changes are possible without incurring gift tax or income tax.
• ✅ Condition protection included: your contract is secure - even in the event of future changes to tax law.
• ✅ No hidden fees: No custody account management fee, no transaction costs - maximum transparency.
• ✅ Full flexibility: adjust installments, pause, make one-off payments - possible at any time.

"Secure, flexible, future-oriented: start your child's future with us."

5200+ parents trust Invest4Kids

Book free consultation

Ogün

December 02, 2024

We feel that we are in good hands with Oskar 🙂 He explained everything to us in detail and took the time to answer all our questions. Top advice! I am happy to recommend him!

💬 What parents say about Invest4Kids:

"We didn't want to take the risk of our son spending everything in one go at the age of 18. Invest4Kids was the perfect solution - and the advice was simply top-notch." - Michaela, mother from Cologne

"I was afraid of tax surprises later on. With Invest4Kids, I know exactly what to expect - and save real money in the long term." - Jens, father of two children

💡 Example: You give your child 100,000 euros via Invest4Kids. The money is invested in a tax-optimized way and the earnings can be reinvested tax-free. If your child takes over the money later - e.g. after the age of 62 - only 50% of the profit has to be taxed. So you not only benefit from the tax-free allowance of 400,000 euros, but also from the clever advantages of the product.

🎯 It's clear: with Invest4Kids, you can give your child a real financial head start - without compromising on flexibility, transparency or tax savings. And best of all: our personal advice is free of charge.

Frequently asked questions - clearly explained

When it comes to gifts, taxes and investments for children, the same questions come up again and again. Here you will find the most important answers - clear, understandable and to the point.

📌 Do I always have to report a gift?

Yes, larger gifts must be reported to the tax office - within three months of the acquisition. Even if you remain below the tax-free amount, you are obliged to report it. This applies both to you as the donor and to the recipient.

📌 How high is the gift tax if I exceed the tax-free amount?

This depends on the degree of relationship, the tax class and the amount of the gift. The favorable tax class I applies to children. If you exceed the tax-free amount of 400,000 euros, for example, the excess amount will be taxed at rates between 7% and 30%, depending on the amount.

📌 What actually counts as a gift?

Everything that you voluntarily transfer to someone for nothing in return: Money, real estate, insurance, company shares or other assets.

📌 Does this also apply to gifts for special occasions?

Occasional gifts such as for births or graduations are usually tax-free - as long as they remain within reasonable limits and do not give the impression of a major transfer of assets.

📌 Can I give my child another present later?

Yes, you can use the full allowance every ten years - i.e. 400,000 euros per parent every ten years for children. With good planning, you can transfer this much wealth tax-free.

Conclusion: Now is the best time to give a gift

If you want to provide for your child, a well-thought-out gift is the perfect way to go. You can make use of high tax-free allowances such as the 400,000 euros for children, save taxes and build up assets in the long term - without any tax surprises. It is important that you plan early, know the rules and choose the right model.

While a traditional custody account often involves risks, the Invest4Kids concept offers you everything you need: tax advantages, flexibility, security and, above all, the opportunity to retain control over the investment even after your 18th birthday.

With a free, no-obligation consultation, we will help you find the best solution for your child - independent, understandable and tailored to your life situation.

🎯 A ct now instead of waiting: start your gift today and build a strong foundation for your child's future. Because doing the right thing at the right time will ultimately make the difference - for you and the next generation.